The tax year ends on 28 February (29 February in a leap year). You need to stay on top of your investments if you want to make smart tax decisions before you close off your financial year. It’s time to check the numbers with your tax advisor and make sure you’re not paying more tax than you’re legally required to. Reducing your tax bill means saving money and growing your wealth.
 

Review your tax-free investments 

Start by checking your tax-free investments (TFIs). Have you put away the full R36,000 that you’re allowed to contribute to TFIs every year? If not, can you afford to do so before the end of February?

TFIs are well suited to saving for retirement or other long-term goals. They add value to your investment portfolio because they are not taxed on interest, dividends or capital gains. This is a refreshing tax break if you consider that, as an individual, you pay 20% tax on any dividends, up to 18% tax on capital gains and your personal tax rate on any income earned from taxable investments. Furthermore, all income generated through TFIs can be reinvested into the investment product without incurring any tax liabilities. Lastly, there are no upfront, switching or exit fees – the only fee is the annual management fee.

Clearly, investing in TFIs is a great way to make every rand count and to maximise the growth on your savings and investments, while giving you peace of mind knowing that you can access your money if you need to. But to take advantage of the full power of TFIs, top up your investments to the maximum allowed every year – you’ll build a stronger investment portfolio while enjoying the emotional kick of paying less tax.

How TFIs work

If you can afford to save R36,000 or more a year, it makes sense from a tax point of view to contribute R36,000 to TFIs before you contribute to any other (taxable) investments – especially over the long term.

Remember, though, that you can invest a maximum of R36,000 per year and a total of R500,000 over your lifetime in tax-free savings. Should you contribute more than the stipulated limit, the excess is taxed at 40% – so be careful not to exceed your limits. Rather put any excess into taxable investments.

Talk to your financial advisor before the end of February, the end of the tax season, to make sure you’re within the contribution limit. Remember that the stipulated limits of TFIs are applied across all financial institutions and service providers. No matter how many different TFIs you have, the limit on contributions applies across the board.

Take out a new tax-free investment or top up an existing one

Nedbank offers a tax-free savings account, a tax-free fixed-deposit account and tax-free unit trust investments. The first 2 accounts grow your money with interest, whereas a tax-free unit trust investment offers you a selection of investment funds that are managed by a professional investor. We can also help you transfer tax-free savings between investment products safely so that the transfer is not viewed as a new contribution. If you simply withdraw from one TFI product and deposit the money in another, it counts as a new contribution, so it reduces the contributions you can still make in that year, or before you reach your lifetime limit.

If you don’t have a TFI yet, it’s not too late to open a new one before the deadline and start investing smartly without having to worry about tax on your returns. Log in to Online Banking, go to Apply > Save and invest your money > Tax-free investments. On the Money app, go to Apply > Grow your investments > Tax-free investments.

To top up your contributions before the deadline on 28 February, you can pay a lump sum into your existing TFIs – it’s simple if you use the Nedbank Money app or Online Banking (tax-free savings or fixed deposits) or log in to Nedgroup Investments with your Nedbank ID (tax-free unit trusts).

Securing your financial future

TFIs are a great way to diversify your investment. If, for example, you are keen to invest offshore, you can use a tax-free savings account as a platform for international investment via local investment products such as unit trusts or exchange-traded funds (ETFs).

TFIs help secure future financial needs. They can boost retirement savings so you can do the things you’ve always wanted to in your golden years, like travelling the world. TFIs can also cement your family’s wealth. For example, you could help your children retire comfortably if you start investing in a TFI for them the moment they’re born, and they remain invested until they retire.

Explore Nedbank’s full range of savings and investment accounts, including our TFI options.